A reader recently posed this question to me, and went on to say:
I've heard "I'm making good money at my new job." Without numbers attached, what does that mean? Well, to someone who just started in fast food it might mean $8.50 and hour, but to an ER physician it could mean $130K/year.
This is an interesting question that falls into two distinct parts (salary and net worth) so let's view them separately. First, though, we need to clearly define what a lot is. To me, it refers to an amount that is significantly outside of the range of financial accumulation that you and your peer group are familiar with. So, for example, if you and your social circle all make between $8 and $10 an hour, someone making $40,000 a year would have a lot of money, but to that someone making $40,000 a year, it wouldn't seem like all that much.
What Is A Lot Of Salary?
What I have observed in my own experience is that most of my friends have roughly the same salary that I do, within a reasonable margin. Thus, I consider a range around my own salary to be normal. I was also raised in a rather impoverished household, so I also consider significantly lower salaries to be normal.
Where things begin to shift is at a point about 50% higher than what I make. That point begins to seem like a lot of money to me. For example, if I make $50,000 a year, anyone who makes $75,000 or more a year seems to me to be making a lot of money.
Over time, one tends to shift their perspective. For example, I grew up quite poor and when I was in college, salaries in the $20,000 range seemed normal and $30,000 seemed like a lot of money. My college roommate had parents whose combined salary was north of $150,000 and I actually admitted to him that I believed his family to be rich. He actually laughed at this comment.
However, as I moved into my own employment situation, my first job out of college paid me a salary of $43,000 a year. This seemed like an incredible amount of money to me for the first year or so, but as time wore on, this began to seem normal. What seemed like a lot of salary became normal, and my definition of a lot of salary moved upward.
Right now, some of my side activities are firing on all cylinders, so I currently feel as though I am on the verge of making what I think of as a lot of money. I haven't felt any shift in my sense of normal yet, though, because I convince myself that this is a short-term boost in income.
In a nutshell, our definition of a lot of salary depends largely on current experience, with past experience playing a small role.
What Is A Lot Of Net Worth?
Net worth, on the other hand, seems to have a strong connection to age. As people get older, I expect them, for the most part, to have a greater net worth than younger people.
For example, looking at people my own age (late twenties), I don't view having a negative net worth as being abnormal and having a net worth of more than, say, $50,000 is having a lot of money. However, if I look at people who have lived lives similar to mine and are, say, twenty five years older, I view it as normal that they have several hundred thousand dollars in net worth - I don't gasp at that kind of money if I know they've had time to build it up.
Thus, my definition of "a lot" of net worth has a complex relationship with salary and age.
What Value Does This Discussion Have?
For many people, their definitions of "a lot" of money are inherently tied to senses of self-worth. They compare themselves to people that have "a lot," and feel a strange set of emotions. Some people feel motivated to join that club; others feel guilty and depressed.
What I seem to find over and over again is that people who see "a lot" of money as motivation tend to have sensible personal financial practices, while people who see "a lot" of money as a downer tend to have a lot of issues with debt. Thus, one big step in a healthy direction that you can take is every time you think of "a lot" of money, think of little things you can do to take a step towards getting there. Could you get rid of a large payment in your life? Could you go shopping less? How about paying off those credit cards?
Also, one person's definition of "a lot" of money doesn't match another person's definition. For me, my parents view my income as a lot of money, while I do not. At the same time, there are readers of this site who make what I consider to be a lot of money, but they do not and struggle to get by.
The truth is that it's all perspective, but you can use perspective to set good goals for yourself. It's because of this relationship between perspective and goals that I post my monthly financial updates here in percentage form rather than raw dollar form. No matter what your situation, working for an 4% increase in net worth over a month is an incredibly rewarding task and goal.